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A bridging loan can be regulated or unregulated – depending on whether it is or will be occupied by the borrower or a close relative.
A bridging loan will be classified as ‘regulated’ when it is secured against a property that is occupied by the borrower or by a close relative. Where the close relative is renting the property as a tenant of the borrower this is also considered regulated.
There are two types of regulated bridging loans. A first charge which would be the first bridging loan secured against the property and a typical LTV of 75%, or a second charge which would be the next bridging loan secured again the property and which is restricted to 70% LTV.
You can only get a second charge bridging loan on a property if there is enough equity left after the first charge.
These types of bridging loans are regulated by the Financial Conduct Authority (FCA) because they are secured on your property, which is usually your own home that you live in. It is treated as important as a residential mortgage because if you do not keep up the payments your home could be repossessed.
A second charge bridging loan doesn’t have to be with the same lender and when taken out will rank behind the first charge.
You can use a bridging loan for many reasons, but it is most often used to purchase a property if there is a chain break or mortgage applications will not be approved in time for the property completion.
These types of bridging loans can be secured on properties such as houses, flats, and even plots of land that are going to be used to build a house that you will live in as the owner.